Is Legalizing Weed Good For The US Economy?

In a country where marijuana remains illegal, it is amazing how millions atop of millions of people smoke the herb on a regular basis. The appeal is no mystery — it gets you high. Not to mention all the creative ways there are of consuming it.

You can roll it, pack it, vaporize it, boil it and make it into a tea or if you are feeling especially creative, you can bake it into an endless array of goodies. You can even make it into candies like lollipops. The real question is: if so many people are enjoying it and doing so safely, why not legalize it?

Well, as many of you know, this may very well be changing in the next decade or so. Let's take a look at why the U.S. federal government is beginning to reconsider their stance on marijuana.

According to the FBI's Uniform Crime Reports, an American is arrested for violating a cannabis law roughly every 30 seconds. To give you a better idea of the cost of all of this regulating, take into consideration all of the different factors. The government has to pay for the law enforcement that makes the arrests, it has to pay for the prosecution in court and possibly the defense — lawyers are never cheap — and then the government has to pay to incarcerate these 'criminals.'

But it goes further — if the offender has children, then the government has to pay for foster care and/or social services. All of this spending does not come from the federal government alone, but is shared in large part by the more local state governments. In total, the amount of money spent annually in order to prohibit the use and sales of illegal marijuana costs taxpayers about $7.7 billion dollars.

$5.3 billion spent by the state and local governments and $2.4 billion spent by the federal government. While these numbers seem rather substantial, in the grand scheme of things they actually aren't. Of course, billions of dollars saved is billions of dollars that could be spent elsewhere on improving the lives of Americans, but it won't be helping us out of debt anytime soon.

There are also other factors that go into the push for legalizing marijuana. It's not just the savings that matter, but also the profits from sales and from taxation. This past November, the state of Colorado passed Amendment 64 to its constitution. Amendment 64, also known as the Legalized-Marijuana Bill, allows cannabis to be sold to anyone over the age of 21 at retail stores as well as allowing adults to carry up to one ounce of marijuana on them anywhere within the state.

These retail centers will be regulated by the state and both state and local taxes would be collected from the businesses. The bill also outlines plans for funding public schools and other public projects with the new revenue. But how much exactly will the newly legalized herb bring? Some experts estimate as much as $270 million in sales revenue a year, with $47 million in tax revenue as well as enormous savings on law enforcement.

This, however, does not include the amount of revenue that the federal government would make were it to implement a tax on marijuana similar to alcohol and tobacco. This, of course, would require the government to legalize weed throughout the states.

Were the federal government to do so, some experts believe that the tax would generate nearly $7 billion in annual revenue for the federal government. If you add that to the estimated annual federal savings of $2.4 billion, the U.S. government would have about $9 billion more to put towards other ventures. There is, however, a bit of a problem with all of these calculations. Most of these reports do not take into consideration the laws of economics — supply and demand specifically.

John Ingold from Denver Post wrote:

“But other experts who have examined the issue say it is deeply uncertain how much money the amendment could generate. A dizzying number of factors — the number of stores, the demand, the price, the amount of tax evasion, the federal government's response and even the measure's impact on other industries — go into determining how much new revenue the amendment would create.”

The main issue would be this: if marijuana becomes legal, the supply will most definitely increase, but it is uncertain by how much — if at all — the demand would increase. This would cause the market price of weed to decline, lowering the projected revenue from both sales and taxes.

Also, if marijuana becomes legal, more and more people will decide to take the risk of growing it from home without a license, meaning they will have no need for buying any from a retailer. Likewise, many of these illegal producers will most definitely decide to sell some of their crop on the side, creating a black market.

Because the state and federal government taxes will make the retail price of marijuana rather high, many people will still choose to buy marijuana illegally for a much lower price. This is exactly what happened in California when they passed a similar marijuana-legalizing bill in 2010.

Revenue projections failed to pan out because the high tax levels created a black market that continues to thrive today. The black market limits the tax-revenues for the local and state governments and has cost them more in law enforcement measures than originally was believed.

It is difficult to say exactly how much revenue will be brought in from legalizing marijuana on a federal level, but money will be made and money will be saved. You must also take into consideration all the new jobs that would be opening up as well as the environmental impact that growing marijuana has.

Growing marijuana indoors is estimated to currently account for 1% of the country's electricity consumption. When added to transportation fuels, having an environmental impact roughly equivalent to that of 3 million cars. Much of this could be avoided if the crops were to be grown outdoors.

But then again, many people are arguing that the quality of outdoor grown marijuana doesn't come close to that of indoor grown marijuana. As all things in life, legalizing marijuana does have its pros and cons, but assuming that more and more states will decide to pass their own marijuana-legalizing bills, the federal government is likely to join in on the tea-party — 'special tea' tea party that is.